Melrose Sunglasses sell for about $155 per pair. Suppose that the company incurs the following average costs per pair: (Click the icon to view the cost information.) Melrose has enough idle capacity to accept a one-time-only special order from Nevada Shades for 26,000 pairs of sunglasses at $85 per pair. Melrose will not incur any variable selling expenses for the order. Read the requirements. Requirement 1. How would accepting the order affect Melrose's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Melrose's managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income. (Enter decreases to profits with a parentheses or minus sign.) Expected increase in revenues Expected increase in expenses Expected sunglasses x sunglasses x in operating income In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Melrose's managers consider in deciding whether to accept the order? A. How will Melrose's competitors react? Will they retaliate by cutting their prices and starting a price war? B. Will Melrose's other customers find out about the lower sale price Melrose offered to Nevada Shades? If so, will these other customers demand lower sale prices? C. Will lowering the sale price tarnish Melrose's image as a high-quality brand? OD. All of the above E. None of the above Requirement 2. Melrose's marketing manager, Peter White, argues against accepting the special order because the offer price of $85 is less than Melrose's $90 cost to make the sunglasses. White asks you, as one of Melrose's staff accountants, to explain whether his analysis is correct. What would you say? When deciding whether to accept a special order, we should compare the revenues we will receive against the differential costs we will incur to fill the order. Costs that we will incur whether or not we fill the order are relevant to our decision. This is why comparing the $85 price Nevada Shades offered us with our $90 total cost of making the sunglasses is correct The additional revenues and the additional costs that we will incur to fill the special order are the Nevada Shades special order, we will incur only per pair that Nevada Shades offered. Therefore, we should If we accept Data table of additional cost per pair, which is the special order to than the $85 the company's - X operating income. Direct materials Direct labor Variable manufacturing overhead Variable selling expenses Fixed manufacturing overhead Total cost $ 44 10 8 3 $25* 90